Monday, October 06, 2008

Unsocialized Medicine

As Paul Krugman first pointed out (see ), the quotation from Ronald Reagan that Sarah Palin used at the end of the Vice Presidential debate was taken from a recording that Reagan made in the 1950s in opposition to the enactment of Medicare (aka, "socialized medicine"). I doubt the quotation was selected at random, or its relationship to the earlier health care debate was coincidental, because fear of the goverment has been a persistent theme of those opposed to government-paid health care.

This anti-goverment theme was explicit in Palin's criticism of Obama's plans for health care, which she described as a "universal government run program," adding that, "unless you're pleased with the way the federal government has been running anything lately, I don't think that it's going to be real pleasing for Americans to consider health care being taken over by the feds."

Of course, "lately" the government has been run by Republicans, but let's ignore that unintentional admission of Republican ineptitude because governmental incompetence is still a truism for many people. Except that we now have experience with government-run health care in the United States. It's called Medicare, and people like it. Independent surveys show that people are generally more satisfied with Medicare than with private health insurance. (See, for example, "Medicare v. Private Insurance: Rhetoric and Reality" at

Knee-jerk opposition to all things governmental overlooks the advantages of a government-run, bureaucratic system, one of which is that the elimination of the profit motive actually makes Medicare more efficient, and more consumer-friendly, than private insurance.

A private insurance company makes a profit by charging premiums in excess of the covered medical costs of its policyholders. One way for an insurer to increase profits would be to raise premium prices, but consumers can easily shop among insurance companies by comparing premium costs, so market pressures will keep premiums competitive. The other way to increase profits is by reducing the medical benefits paid. This can be done by screening out applicants who might incur higher than average medical costs (e.g., those with "pre-existing" conditisions) and by scrupulously denying claims for any benefits not absolutely required by the terms of the policy. And both screening applicants and screening claims requires more administrative oversight. (For that reason, a good way to shop among competing insurance companies is to look at both the costs of the premiums they charge and the percentage of the premiums paid in administrative costs compared to benefits paid. You're more likely to get value for your money from a company that pays a larger percentage of premiums back to its customers in the form of benefits.)

A government-run, bureaucratic system, by comparison, has no profit motive. There is therefore no incentive to screen applicants or claims more than is necessary to comply with the terms of the program. As a result, Medicare is much more efficient that private insurance companies. According to Paul Krugman (once again) in today's (10/6) column, for private insurance companies selling individual health plans, 29 percent of their total costs are administrative costs, and not medical benefits, while Medicare spends only 3 percent of its money on administration.

That's right, it is private industry that has bloated, inefficient bureaucracies, and not the government.

The other advantage to a government bureaucracy over a private bureaucracy is that the government bureaucrat doesn't really care whether he (or she) grants or denies your claim for benefits. It's not his money, so what does he care?

The private bureaucrat does care, because the profitability of his employer is at stake. In fact, investigation often find that private insurance companies provide implicit incentives for their employees to deny claims for benefits and disincentives to allowing claims. By constrast, government workers are often rated by the volume of claims processed without regard to whether the claim is allowed or denied. So a government bureaucrat may have an incentive to pay a large number of claims quickly, while a private bureaucrat has an incentive to pay fewer claims slowly.

Bottom line: We mustn't let soundbite appeals to knee-jerk ideologies obscure the reality that "socialized medicine" works in other countries and it works here too.

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